As income traders, we often go back to the well, so to speak, and trade a roster of stocks that we are very familiar with. That’s because the name of the game is generating consistent income, not finding the next hot, new investment.
But it’s always exciting when we add a new name to the mix, as we did last week in Options Income Weekly with Rivian Automotive (RIVN).
If you follow the electric vehicle market, you may have heard of the maker of electric pickups and SUVs. Options Income Weekly Editor Dave Durham actually had the idea to consider trading the stock after seeing a few of the vehicles driving around his neighborhood.
It hasn’t exactly been smooth sailing for the Irvine, California-based company. Like many EV startups, it has experienced production issues and supply chain problems. What’s more, the stock went public at perhaps the worst possible time — in late 2021, at the height of the previous bull market and EV mania.
On Nov. 10, 2021, RIVN offered 153 million shares at $78 per share, raising close to $12 billion in what was the largest U.S. IPO since Facebook went public in 2012. Talk about hype!
Four days after going public, RIVN topped out at nearly $180 a share. After that, it was pretty much straight downhill. In fact, shares didn’t bottom out until April of this year, when they hit a low of $11.68.
But the stock has more than doubled since that low and is up 34% on a year-to-date basis. In addition to traders being willing to take on more risk amid 2023’s bull market, Rivian’s second-quarter deliveries came in ahead of expectations. Deliveries of 12,640 were up nearly three-fold from the second quarter of 2022, showing the company’s production issues may be behind it.
Revenue is growing at an impressive clip, and although Rivian continues to report big losses, it has beaten analysts’ estimates in each of the past four quarters. The company’s next quarterly report is scheduled to be released on Aug. 8.
While this is certainly a higher-risk stock, Barclays recently gave it a big upgrade, raising its price target to $30 from $22 and maintaining its “overweight” rating.
As Dave noted in the July 11 Options Income Weekly live trading session ahead of placing the trade, the stock had gained 76% in the previous two weeks, resulting in an implied volatility rank of 87%. Given this and the stock’s ample liquidity, we were able to go further out of the money than usual and still collect a large premium.
With the stock at $24.94, we recommended selling to open the RIVN 28 Jul 20.50 Put, which was nearly 18% out of the money. We collected $0.32, or $32 per contract, and told members that we would look to exit the position at $0.15.
While we had 17 days to expiration (DTE), it didn’t take that long. RIVN continued its run up, rising nearly 8% to $26.86 in less than 48 hours. This caused the premium on the put we sold to fall below our target exit price.
So we recommended members take the money and run. We bought back the put we sold for $0.14, booking a profit of $0.18, or $18 per contract. While that may not sound like a lot of cash, consider that we earned a 0.9% return on the $2,050 in capital used to secure the put in just two days.
Since we closed out that trade on July 13, RIVN has continued to display large daily and intraday moves, resulting in elevated premiums. In fact, we just opened another trade on the stock in this week’s Options Income Weekly live trading session.
This time we sold a put that was 14% out of the money and we are targeting a 0.8% rate of return in 10 days or less. If RIVN continues to run like it has been, we’re likely to have another fast winner on our hands.
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